OREANDA-NEWS. Natus Medical Incorporated (NASDAQ:BABY) today announced financial results for the three months ended June 30, 2016.

For the second quarter ended June 30, 2016, the Company reported revenue of $96.0 million, an increase of 4.5% compared to $91.9 million reported for the second quarter 2015. GAAP Gross profit margin was 59.9% vs. 62.4% reported for the second quarter 2015. GAAP net income was $10.5 million, or $0.32 per diluted share, compared with GAAP net income of $9.9 million, or $0.30 per diluted share in the second quarter 2015, representing a 7% increase in GAAP earnings per diluted share.

Non-GAAP earnings per diluted share increased 15% to $0.39 for the second quarter 2016, compared to $0.34 in the second quarter 2015. Non-GAAP net income was $12.8 million for the second quarter ended June 30, 2016 compared to the prior year's non-GAAP income of $11.2 million. Non-GAAP Gross profit margin was 60.5% vs. 63.2% reported for the second quarter of 2015.

For the six months ended June 30, 2016, the Company reported revenue of $183.3 million, an increase of 1.1% compared to $181.3 million reported for the same period in 2015. GAAP Gross profit margin was 61.0% vs. 61.2% reported for the same period in 2015. GAAP net income was $19.1 million, or $0.58 per diluted share, compared with GAAP net income of $18.4 million, or $0.56 per diluted share in the same period in 2015, representing a 4% increase in GAAP earnings per diluted share.

Non-GAAP earnings per diluted share increased 11% to $0.72 for the first six months in 2016, compared to $0.65 in the same period in 2015. The Company reported non-GAAP net income of $23.9 million for the six months ended June 30, 2016, compared to the prior year's non-GAAP net income of $21.4 million.

Cash and cash equivalents increased by $15.0 million to $96.3 million during the quarter. The Company repurchased $7.7 million of its stock during the second quarter of 2016. Cash flow from operations for the second quarter was $13.6 million.

"I am very pleased with our record second quarter revenues and earnings per share.  Our domestic neurodiagnostic and newborn care businesses reported record results in the second quarter.  Our fast growing new service initiatives continued their strong performance as NicView revenues grew by 90 percent, Peloton by 80 percent and GND by 45 percent verse our second quarter last year.  We remain committed to achieving our full year 2016 non-GAAP operating margin goal of 20%," said Jim Hawkins, President and Chief Executive Officer of the Company.

"We recently announced the acquisition of RetCam, the worldwide leader in imaging systems used to diagnose and monitor a range of ophthalmic maladies in premature infants.  We believe RetCam technology has exciting growth opportunities in the years ahead and are looking forward to further developing the newborn retinal imaging and screening market.  Our growth strategy continues to include selective acquisitions like RetCam and potentially larger acquisitions that will expand our product offerings in the markets we serve," said Hawkins.

Financial Guidance

The Company provided revenue and earnings guidance for the second quarter and updated its revenue and earnings guidance for the full year 2016.

For the third quarter 2016, the Company expects revenue of $97.0 million to $98.0 million, GAAP earnings per share of $0.35 to $0.37 and non-GAAP earnings per share guidance of $0.41 to $0.43.

The Company increased its full year 2016 revenue guidance and now expects revenue of $388 million to $390 million compared to previous guidance of $378 million to $382 million. The updated revenue guidance includes $7 million attributable to the acquisition of RetCam. Full year 2016 guidance for GAAP earnings per share is $1.35 to $1.38.  Non-GAAP earnings per share guidance is being updated to $1.67 to $1.70 compared to previous guidance of $1.61 to $1.65.

The Company's non-GAAP earnings guidance excludes amortization of acquisition related intangibles, acquisition related charges, restructuring charges, and their related tax effects. All non-GAAP earnings per share amounts are on a diluted basis.

Use of Non-GAAP Financial Measures

The Company presents in this release its non-GAAP net income, non-GAAP earnings per share, non-GAAP gross margin and non-GAAP operating margin results which exclude amortization expense associated with certain acquisition-related intangibles, restructuring charges, certain discreet items, direct costs of acquisitions and the related tax effects. A reconciliation between non-GAAP and GAAP financial measures is included in this press release.

The Company believes that the presentation of results excluding these charges or gains provides meaningful supplemental information to both management and investors that is indicative of the Company's core operating results and better reflects the ongoing economics of the Company's operations. The Company believes these non-GAAP financial measures facilitate comparison of operating results across reporting periods.

Specifically, the Company excludes the following charges, gains, and their related tax effects in the calculation of non-GAAP net income, non-GAAP earnings per share and non-GAAP operating expense and excludes all but Restructuring charges from the calculation of non-GAAP gross margin: 1) Non-cash amortization expense associated with certain acquisition-related intangibles. The charges reflect an estimate of the cost of acquired intangible assets over their estimated useful lives. 2) Restructuring charges. The Company has over time completed multiple acquisitions of other companies and businesses. Following an acquisition the Company will, as it determines appropriate, initiate restructuring events to eliminate redundant costs. Restructuring expenses which are excluded in the non-GAAP items are exclusively related to permanent reductions in our workforce and redundant facility closures. 3) Certain discreet items. These items represent significant infrequent charges or gains that management believes  should be viewed outside of normal operating results. These items are specifically identified when they occur. 4) Direct costs of acquisitions.  These are direct acquisition-related costs that occur when the Company makes an acquisition, such as professional fees, due diligence costs, and earn-out adjustments.

The Company applies GAAP methodologies in computing its non-GAAP tax provision by determining the annual expected effective tax rate after taking into account items excluded for non-GAAP financial reporting purposes.  The Company’s non-GAAP tax expense and its non-GAAP effective tax rate are generally higher than its GAAP tax expense and GAAP effective tax rate because the income subject to taxes would be higher due to the effect of the items excluded from non-GAAP financial reporting. 

The Company's management uses these non-GAAP financial measures in assessing the Company's performance and when planning, forecasting, and analyzing future periods and the Company believes that investors also benefit from being able to refer to these non-GAAP financial measures along with the GAAP operating results. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated.

About Natus Medical Incorporated

Natus is a leading provider of healthcare products and services used for the screening, detection, treatment, monitoring and tracking of common medical ailments in neurological dysfunction, epilepsy, sleep disorders, newborn care, hearing impairment and balance and mobility disorders.

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
 
   Quarter Ended    Year to Date
  June 30, 2016   June 30, 2015   June 30, 2016   June 30, 2015
Revenue $ 95,958     $ 91,937     $ 183,287     $ 181,332  
Cost of revenue 37,879     33,844     70,348     68,948  
Intangibles amortization 604     683     1,205     1,366  
Gross profit 57,475     57,410     111,734     111,018  
Gross profit margin 59.9 %   62.4 %   61.0 %   61.2 %
Operating expenses:              
Marketing and selling 21,236     22,108     41,832     42,850  
Research and development 7,105     7,309     14,907     14,167  
General and administrative 11,924     11,656     24,403     23,208  
Intangibles amortization 2,197     2,174     4,332     3,129  
Restructuring 1,083     161     1,118     316  
Total operating expenses 43,545     43,408     86,592     83,670  
Income from operations 13,930     14,002     25,142     27,348  
Other income/(expense), net 25     (380 )   481     (1,210 )
Income before tax 13,955     13,622     25,623     26,138  
Provision for income tax expense 3,443     3,771     6,573     7,691  
Net income $ 10,512     $ 9,851     $ 19,050     $ 18,447  
Earnings per share:              
Basic $ 0.32     $ 0.31     $ 0.59     $ 0.57  
Diluted $ 0.32     $ 0.30     $ 0.58     $ 0.56  
Weighted-average shares:              
Basic 32,438     32,273     32,521     32,201  
Diluted 32,983     33,204     33,118     33,158  
 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
 
  June 30,   March 31,   December 31,
  2016   2016   2015
ASSETS          
           
Current assets:          
Cash and cash equivalents $ 96,284     $ 81,285     $ 82,469  
Accounts receivable, net 93,102     90,013     99,080  
Inventories 43,620     45,691     48,572  
Other current assets 12,925     11,360     11,235  
Total current assets 245,931     228,349     241,356  
           
Property and equipment, net 17,174     17,624     16,967  
Goodwill and intangible assets 192,173     196,413     194,002  
Deferred income tax 12,809     12,695     12,782  
Other assets 18,005     17,649     14,389  
Total assets $ 486,092     $ 472,730     $ 479,496  
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable $ 18,836     $ 19,418     $ 23,660  
Short-term borrowings 10,000     —     —  
Accrued liabilities 37,306     36,911     42,137  
Deferred revenue 11,262     11,460     11,311  
Total current liabilities 77,404     67,789     77,108  
           
Long-term liabilities:          
Deferred income tax 3,839     3,881     3,897  
Other long-term liabilities 8,633     8,708     7,781  
Total liabilities 89,876     80,378     88,786  
Total stockholders’ equity 396,216     392,352     390,710  
Total liabilities and stockholders’ equity $ 486,092     $ 472,730     $ 479,496  
 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
 
   Quarter Ended
  June 30, 2016   June 30, 2015
Operating activities:      
Net income $ 10,512     $ 9,850  
Adjustments to reconcile net income to net cash provided by operating activities:      
Provision for losses on accounts receivable 408     307  
Excess tax benefit on the exercise of stock options —     (3,317 )
Depreciation and amortization 4,173     4,195  
Impairment of intangible assets —     —  
Impairment of property and equipment (46 )   —  
Warranty reserve 1,383     2,277  
Share-based compensation 2,102     1,760  
Changes in operating assets and liabilities:      
Accounts receivable (2,673 )   (1,380 )
Inventories 1,255     (3,637 )
Prepaid expenses and other assets (1,778 )   1,505  
Accounts payable (896 )   (2,945 )
Accrued liabilities (336 )   (4,510 )
Deferred revenue (172 )   2,984  
Deferred income tax (322 )   (1,378 )
Liabilities acquired in acquisitions —     —  
Net cash provided by operating activities 13,610     5,711  
Investing activities:      
Acquisition of businesses, net of cash acquired (501 )   519  
Purchases of property and equipment (181 )   (976 )
Purchase of intangible assets (243 )   (890 )
Net cash used in investing activities (925 )   (1,347 )
Financing activities:      
Proceeds from stock option exercises and Employee Stock Purchase Program purchases 1,584     4,396  
Excess tax benefit on the exercise of stock options —     3,317  
Repurchase of common stock (7,691 )   (4,203 )
Taxes paid related to net share settlement of equity awards (558 )   (1,189 )
Contingent consideration earn-out —     (664 )
Proceeds from short-term borrowings 10,000     —  
Payments on borrowings —     —  
Net cash used in financing activities 3,335     1,657  
Exchange rate changes effect on cash and cash equivalents (1,021 )   218  
Net increase in cash and cash equivalents 14,999     6,239  
Cash and cash equivalents, beginning of period 81,285     66,999  
Cash and cash equivalents, end of period $ 96,284     $ 73,238  
 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (UNAUDITED)
(in thousands, except per share amounts)
 
   Quarter Ended
  June 30, 2016   June 30, 2015
GAAP based results:      
Income before provision for income tax $ 13,955     $ 13,622  
       
Non-GAAP adjustments:      
Intangibles Amortization - Cost of revenue 604     683  
Intangibles Amortization - Operating expense 2,197     2,174  
Restructuring 1 1,083     161  
Direct costs of acquisitions (M&S) 2 (583 )   —  
Direct costs of acquisitions (OI&E) 74     —  
Non-GAAP income before provision for income tax 17,330     16,640  
       
Income tax expense, as adjusted 4,554     5,482  
       
Non-GAAP net income $ 12,776     $ 11,158  
Non-GAAP earnings per share:      
Basic $ 0.39     $ 0.35  
Diluted $ 0.39     $ 0.34  
       
Weighted-average shares used to compute      
Basic non-GAAP earnings per share 32,438     32,273  
Diluted non-GAAP earnings per share 32,983     33,204  
       
GAAP Gross profit 57,475     57,410  
Amortization of intangibles 604     683  
Non-GAAP Gross Profit 58,079     58,093  
Non-GAAP Gross Margin 60.5 %   63.2 %
       
GAAP Operating profit 13,930     14,002  
Amortization of intangibles 2,801     2,857  
Restructuring and other charges 500     161  
Non-GAAP Operating profit 17,231     17,020  
Non-GAAP Operating margin 18.0 %   18.5 %
 

1 Restructuring costs primarily consist of facility abandonment charges related to our Munich, Germany and Austin, Texas facilities, and severance costs associated with the ceasing operations in Munich, Germany.
2 Amount represents a reduction in our anticipated earn-out payment for the GND acquisition.

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (UNAUDITED)
(in thousands, except per share amounts)
 
   Quarter Ended
  June 30, 2016   June 30, 2015
GAAP Provision for income tax expense   3,443        3,771  
Effect of accumulated change of pretax income   846        995  
Effect of change in annual expected tax rate   265        90  
Effect on acquisition cost   —        626  
Non-GAAP Income tax expense, as adjusted   4,554        5,482  
       
   Quarter Ended    Year to Date
  September 30,
2016		   December 31,
2016
GAAP EPS Guidance $0.35 - $0.37   $1.35 - $1.38
Amortization of Intangibles   0.08       0.41  
Restructuring —     0.03  
Recall Accrual —     0.01  
Direct cost of acquisitions —     (0.02 )
Tax effect   (0.02 )     (0.11 )
Non-GAAP EPS Guidance $0.41 - $0.43   $1.67 - $1.70